Cheers To The Rebooted India-US Relationship, But Trump Is Simultaneously Hitting Us On The Trade Front

Cheers To The Rebooted India-US Relationship, But Trump Is Simultaneously Hitting Us On The Trade Front

There are no flashy events but we are celebrating the 20th anniversary of the rebooted India-US relationship this week. Ironically, it was the Pokhran nuclear tests of May 1998 that started India and US on a journey of rediscovering each other, initially through the long walks that Jaswant Singh and Strobe Talbott took together. Here is a small sampler of the distance we have travelled – in 1998, US was taking India to the cleaners, piling nuclear and tech sanctions on us. In 2018, US energy secretary was telling a Delhi audience to do the smart thing and take the “world’s best” nuclear reactors from the US. From the first Fire-Finder radars in 2001, India is closing in on armed Predator drones from the US.

A defence and strategic relationship developed quickly between New Delhi and Washington, capped by Manmohan Singh’s landmark nuclear deal. Convergences in strategic and security outlook forged by the need to balance China’s rise and check Pakistan’s terror instincts also brought the two countries together, sweetened by India’s rise as a technology power and Indian Americans’ amazing successes.

The trade relationship was always a laggard, but it was subsumed by everything else. Indian officials and government leaders’ favourite line to the US was, and remains – look at our trade in the context of the larger relationship. That line just went past its sell-by date.

Donald Trump does not find it incompatible to have a robust strategic relationship with India while simultaneously hitting India on the trade front. So, as Sushma Swaraj and Nirmala Sitharaman prepare for the “2+2” talks with Mike Pompeo and James Mattis, this tried and tested Indian whine is not likely to get much traction.

On April 13, USTR announced it would review India’s eligibility under the General System of Preferences (India is the largest beneficiary) – this means US will go after India on its recent decision of cap prices of medical devices by “reviewing” permissions for India to export some goods at zero tariff, like jewellery. USTR doesn’t see India through the strategic prism, never has. India is already on the priority watch list in the Super 301 report for IPR ‘violations’; foreign exchange policies are under the scanner, and has been dragged to the WTO on export subsidies. A more protectionist America spouting MAGA and MIGA (‘Make India Great Again’) are seriously at odds here.

On export subsidies, India has a thin case. It should have foreseen trouble when it crossed the $1000 threshold in 2015 and moved to make changes. Now it is doing so in haste and under pressure, never a good idea. On the trade deficit front, India has a much better argument – this is a growing trade relationship, India’s rising buys of oil and gas from the US by itself has a salutary effect on the trade numbers, as does its promised buy of civilian aircraft. But by and large, if India is seen to be a reliable centre for technology innovation and protection, New Delhi has an opportunity to ride this storm. The very fact that the US is hitting India via the WTO is a sign that they don’t want to go down a unilateral path, while giving India time to make adjustments.

A bigger problem on the horizon is Russia-sized, as India comes under the radar of CAATSA (Countering America’s Adversaries Through Sanctions Act) – somehow US sanctions continue to dog India no matter how far the two countries travel together. The simple issue here is if India buys the S-400 missile interceptors from Russia, or anything which would qualify as “significant transaction”, the US could use this law to slap sanctions on India.

Whether the Trump administration gets this or not, just the threat will have an instant blowback on all US defence companies seeking to sell in India – the US as an ‘unreliable’ defence partner will be back on the table and Russia will naturally become the biggest beneficiary. India has been diversifying its weapons buys for, not because of US threats but because its in India’s interest. That’s the way it should remain.

Trump is also expected to toss the Iran nuclear deal into the Straits of Hormuz, potentially affecting India’s prized investment in Chahbahar port. But here India has an easy strategic point – Chahbahar is good for Afghanistan that’s good for both of us.

At least with the Trump administration, India doesn’t have to re-invent the wheel on Pakistan. From all accounts, Washington’s distrust of Rawalpindi as almost as deep as India’s. Pakistan used to be an issue in the strategic discourse between US and India until very recently. Not any more, as we saw most recently during the FATF negotiations, when US, India and even China lined up to call Pakistan out on terrorism.

However, there is now a concerted effort by the US and Europe to drag the Taliban to the table and accept a peace offer by Ashraf Ghani in Afghanistan. This runs the risk of becoming a band-aid solution, a fig leaf for departing western troops from Afghanistan, leaving a target-oriented counter-terrorism operation in place. We would not be looking at peace, but a real possibility of Pakistan strengthening its hold over Afghanistan in the coming years, because this plan does not involve shutting down the terror factory. That would be terrible from the point of view of regional dynamics.

The US now defines its strategic interests a little more narrowly, so India would have to refine its game. The Modi-Xi dosti can and exist alongside the Quad and the US-India, France-India relationship. India will position officials in US’ Centcom base and fight with the US on trade. On the larger canvas, the strategic relationship with the US is seeing India playing a more decisive role in an evolving bipolarity taking shape in the world.